Thursday, September 28, 2023
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Australia’s CBA posts record annual profit; sees margin impact from competition

By Sameer Manekar

(Reuters) -Commonwealth Bank of Australia on Wednesday warned of a hit to margins from fierce competition and softening consumer demand in fiscal 2024 after it posted record annual cash earnings and announced its biggest-ever dividend for the year.

The country’s biggest lender cautioned that for the next financial year “competition, customer deposit switching and higher wholesale funding costs” could impact its margins, with higher average cash rates partly offsetting the impact.

“We are seeing consumer demand moderate and economic growth slow and we are closely monitoring the impact of reduced discretionary spend, particularly on our small- and medium-sized business customers,” Chief Executive Officer Matt Comyn said.

Although margins were strong in the first half owing to the central bank’s aggressive rate hikes, higher borrowing costs and rising competition have resulted in net interest margin slipping 5 basis points from first-half to 2.05% in the second half.

Home loan repayments delayed for more than 90 days ticked higher to 0.47% of the total principal outstanding of all loans as of June-end due to the impact of high interest rates and a rise in the cost of living.

Inflationary pressures, rising interest rates and easing home prices led to a higher loan impairment expense of A$1.11 billion, compared with a A$357 million benefit last year, CBA said.

CBA, also the country’s top mortgage lender, announced the buyback of an additional A$1 billion ($653.80 million) worth of stock and declared a final dividend of A$2.40 per share, which takes the total dividends for the year to a record of A$4.50 apiece.

For the year ended June 30, CBA logged its best ever after-tax cash net profit of A$10.16 billion, above last year’s A$9.60 billion and marginally better than a Visible Alpha consensus estimate of A$10.11 billion, according to Citi.

Net interest margin stood at 2.07% for the full year, above last year’s 1.90%. Common equity tier 1 ratio, a measure of spare cash, stood at 12.2% as of June 30.

CBA’s smaller rivals National Australia Bank (OTC: NABZY), Westpac and ANZ Group will announce their third-quarter updates over the course of the month.

($1=1.5295 Australian dollars)



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